Asymmetric Effects of EU Cohesion Policy on EU Regional Growth: The Role of Macroeconomic Uncertainty
| dc.contributor.author | Pinar, Mehmet | |
| dc.contributor.author | Karahasan, Burhan Can | |
| dc.date.accessioned | 2024-09-08T16:52:58Z | |
| dc.date.available | 2024-09-08T16:52:58Z | |
| dc.date.issued | 2024 | |
| dc.description.abstract | Cohesion policy and the EU funds have been key elements for territorial integration in Europe. Evidence shows that EU funds support the growth performance of regions. However, less has been discussed about the potential impact of macroeconomic uncertainty on the effectiveness of EU funds. Our analyses confirm that EU funds are important in understanding regional economic growth differences. However, the extent of macroeconomic uncertainty decreases the effectiveness of the EU funds. Our results are robust in including local controls, non-linearity of the EU funds’ effect, different EU fund categories, and regional heterogeneity in the EU. © 2024 The Authors | |
| dc.description.sponsorship | Recent literature also identified that the effectiveness (ineffectiveness) of the Cohesion policy funds depends on the region and country conditions. It has also been found that the funds were more effective in institutionally strong regions (Barbero et al., 2023; Rodríguez-Pose & Garcilazo, 2015) and the magnitude of funds allocated to the regions also played a role in the effectiveness of the funds (see e.g., Becker et al., 2012; Cerqua & Pellegrini, 2018; Fiaschi et al., 2018). Our paper aims to contribute to this stream of literature by providing an additional explanation of why EU structural funds may not be effective in promoting economic growth in some countries by considering the macroeconomic uncertainties in the EU countries. We highlight that among various challenges of the EU, regional economic differences and the potential convergence struggle are vital dimensions to motivate the importance of the Cohesion policy (see e.g., López-Bazo et al. (1999), Carevell i et al. (2008), Arbia et al. (2008), Rauhut and Humer (2020) for details).2 Macroeconomic uncertainty is found to have implications for various macroeconomic indicators such as aggregate output, investment, consumption, inflation, and unemployment, among many others (Bloom, 2009). Firstly, macroeconomic uncertainty leads to lower economic activity and higher unemployment levels. Schaal (2017) demonstrates that the uncertainty during the 2007–2009 financial crises accounted for about 40% of the total increase in unemployment in the United States. On the other hand, Choi and Loungani (2015) show that while aggregate uncertainty shocks have a short-run effect on an increase in unemployment rates, but sectoral uncertainty shocks have a long-term impact on unemployment in the United States. Furthermore, existing studies showed that uncertainty has an asymmetric effect on unemployment rates and the effects of uncertainty on unemployment were found to vary across US states (Ahmed et al., 2022), during recession and boom periods (Caggiano et al., 2017) and over time (Eksi & Tas, 2022). Secondly, uncertainty has implications for economic growth and inflation. Neanidis and Savva (2013) show that higher inflation uncertainty diminishes growth rates during high inflation periods. Chowdhury et al. (2018) also demonstrate that inflation uncertainty harms output growth in the United Kingdom and the United States. Chowdhury (2024) finds that uncertainty significantly affects output growth and inflation in developing countries. Berger et al. (2017) show increased global uncertainty hampers economic growth and national inflation rates. Bianchi et al. (2023) empirically show that both demand and supply uncertainty lowers economic activity, and supply-side uncertainty increases inflation and lowers investment activities. Furthermore, due to increased risks associated with the uncertainty, the existing literature found that macroeconomic uncertainty leads to lower private investment (Aizenman & Marion, 1993; Demir, 2009; Asamoah et al., 2016; Meinen & Roehe, 2017; Adil & Roy, 2024), household consumption (Coibion et al., 2024; Ghirelli et al., 2021; Nam et al., 2021)), foreign direct investment (e.g., Canh et al., 2020; Choi et al., 2021; Choi et al., 2023; Nguyen & Lee, 2021), credit market activity (Alessandri & Bottero, 2020; Gozgor et al., 2019) and stock market returns (Batabyal & Killins, 2021; Nusair & Al-Khasawneh, 2022). Based on the existing literature, our main argument is that EU structural funds are less effective in countries with higher macroeconomic uncertainty due to decreased economic activity and increased risk. While the existing literature examined the implications of uncertainty on macroeconomic indicators (e.g., output, investment, consumption, inflation, unemployment, foreign direct investment, stock market returns, etc.) and examined the effectiveness of the Cohesion policy, there is no investigation of the effectiveness of the EU Cohesion policy in the presence of economic uncertainty and this paper aims to close this gap.Our dependent variable is the regional growth of per capita Gross Domestic Product Data (GDP). We collect the NUTS-2 level per capita GDP data from the Cambridge Econometrics' European regional database, which is accessible via the Annual Regional Database of the European Commission's Directorate General for Regional and Urban Policy (Annual Regional Database, 2022). As highlighted in the previous section, our main variables of interest are the regional distribution of the EU funds and country-base differences in uncertainty. First, EU funds' NUTS-2 level distribution is obtained from the Historic EU payments database of the European Commission (DG Regional Policy), which covers the 1988–2018 period (Historic EU, 2022a). The database contains seven different domains: Cohesion Fund (CF), European Agricultural Fund for Rural Development (EAFRD), European Maritime and Fisheries Fund (EMFF), European Regional Development Fund (ERDF), European Social Fund (ESF), Fund for European aid for the most deprived (FEAD) and Youth employment initiative (YEI).4 Our baseline models use the total funds allocated to each region.5 Fig. 1 provides the spatial distribution of the EU funds for selected years of our sample. It is clear that the core EU regions receive the lowest amount of EU funds. In line with the central theme of the Cohesion Policy, peripheral regions of the countries that became members of the EU in different enlargement processes receive the highest proportion of the EU funds. During the 1990s, most of the funds are distributed to the southern regions of the Mediterranean countries. After the Central and Eastern Europe (CEE) enlargement process, we also observed that regions of the CEE countries started to receive high amounts of funding from the EU. | |
| dc.description.sponsorship | European Agricultural Fund for Rural Development, EAFRD; European aid for the most deprived; Rodríguez-Pose & Garcilazo; Historic EU; European Maritime and Fisheries Fund, EMFF; FEAD; European Social Fund Plus, ESF; Emory University, EU; Cohesion Fund; European Regional Development Fund, ERDF; European Commission's Directorate General for Regional and Urban Policy; European Commission, EC, (2022a) | |
| dc.identifier.doi | 10.1016/j.jeca.2024.e00382 | |
| dc.identifier.issn | 1703-4949 | |
| dc.identifier.issn | 2352-8397 | |
| dc.identifier.scopus | 2-s2.0-85202075407 | |
| dc.identifier.uri | https://doi.org/10.1016/j.jeca.2024.e00382 | |
| dc.language.iso | en | en_US |
| dc.publisher | Elsevier B.V. | en_US |
| dc.relation.ispartof | Journal of Economic Asymmetries | |
| dc.rights | info:eu-repo/semantics/openAccess | en_US |
| dc.subject | EU Funds | en_US |
| dc.subject | Structural Funds | en_US |
| dc.subject | Cohesion Policy | en_US |
| dc.subject | Regional Growth | en_US |
| dc.subject | Uncertainty | en_US |
| dc.title | Asymmetric Effects of EU Cohesion Policy on EU Regional Growth: The Role of Macroeconomic Uncertainty | en_US |
| dc.type | Article | en_US |
| dspace.entity.type | Publication | |
| gdc.author.institutional | Karahasan, Burhan Can | |
| gdc.author.scopusid | 55337333900 | |
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| gdc.author.wosid | Karahasan, Burhan Can/Kyp-8470-2024 | |
| gdc.author.wosid | Pinar, Mehmet/Y-7567-2019 | |
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| gdc.description.department | İİSBF, Ekonomi Bölümü | |
| gdc.description.departmenttemp | [Pinar, Mehmet] Univ Seville, Dept Anal Econ & Econ Polit, Avda Ramon y Cajal 1, Seville 41018, Spain; [Pinar, Mehmet] Istanbul Bilgi Univ, Dept Econ, Istanbul, Turkiye; [Karahasan, Burhan Can] MEF Univ, Dept Econ, Maslak Ayazaga Cd 4, TR-34396 Istanbul, Turkiye | |
| gdc.description.publicationcategory | Makale - Uluslararası Hakemli Dergi - Kurum Öğretim Elemanı | en_US |
| gdc.description.scopusquality | Q1 | |
| gdc.description.volume | 30 | en_US |
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| gdc.oaire.keywords | EU funds | |
| gdc.oaire.keywords | Structural funds | |
| gdc.oaire.keywords | Uncertainty | |
| gdc.oaire.keywords | Regional growth | |
| gdc.oaire.keywords | Cohesion policy | |
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| gdc.publishedmonth | Ağustos | |
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| gdc.virtual.author | Karahasan, Burhan Can | |
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